When Land Use Codes Attack: How a 1970's Ordinance is Challenging the Supreme Court to Define The Property A Government Can Take

The waters of the St. Croix River serve as the boundary between Minnesota and Wisconsin for 125 miles prior to emptying into the Mississippi River just south of Minneapolis and eventually the Gulf of Mexico. In 1968 the US Congress enacted the Wild and Scenic Rivers Act (the Act) to encourage both the protection of particular waterways and the development of residential, agricultural, and recreational uses surrounding such waterways.

St. Croix River via Wikipedia.org

As the St. Croix River was included as a National Scenic Riverway under the Act, the State of Wisconsin enacted legislation instructing the Wisconsin Department of Natural Resources (DNR) to implement rules designed to protect the Lower St. Croix. The State then enacted legislation requiring municipalities to adopt zoning and development ordinances at least as strict as the DNR’s guidelines.

At issue is the resulting zoning ordinance enacted by St. Croix County in 1975, which declares a lot as substandard for development if it has a net project area of less than one acre. However, the restriction does not apply to lots in existence as of January 1, 1976. So if the lot existed prior to January 1, 1976 and has a net project area less than 1 acre then development can still occur. Easy enough, right?

Unfortunately, a caveat to that grandfather clause exists and it has found itself as the subject of newly accepted United States Supreme Court case. While lots in existence prior to January 1, 1976 are exempt from the restriction and free to develop, lots that are adjacent to lots under common ownership are not exempt. So if you own a lot that existed prior to January 1, 1976 that has a net project area of less than 1 acre, but you also own the adjacent lot then the subject lot still falls under the ordinance. Further, if two adjoining lots under common ownership each have less than an acre of net project area then the two lots are merged and will suffice as a buildable lot.

This is exactly the situation the Murr family of Troy, WI finds itself in and exactly the situation the US Supreme Court has previously recognized as potentially problematic, but has yet to directly address. In 1960, the parents of the Murr family purchased a waterfront lot along the St. Croix River, known as Lot F, and subsequently transferred title to the father’s business. Later, in 1963, the parents of the Murr Family purchased the adjacent lot, also a waterfront lot, known as Lot E, as an investment property. The family built a small cabin on Lot F, but kept Lot E in a vacant state. In 1994 and 1995, the parents transferred title to Lot F and Lot E, respectively, to the Murr children.

In 2004, the children decided to sell Lot E and use the proceeds to renovate the cabin on Lot F. After salivating for nearly 30 years, the 1975 St. Croix County ordinance finally got the chance to devour someone’s hopes and dreams.

The Murr children own both lots and taken together, Lot F and Lot E, wouldn’t you know, have just less than one acre of net project area after accounting for roadway easements, required setbacks, and similar restrictions; meaning, under the ordinance both lots are substandard, adjacent, and under common ownership and are therefore merged to form one lot. This not only prevents the Murrs from using Lot E as a separate, buildable lot, but also from selling Lot E by itself since the two lots are effectively merged.

St. Croix River Beach in Troy, WI via townoftroy.org

The Murr children requested several variances in order to move forward with the plan including a variance to sell and use the two lots separately. St. Croix County’s denial of this variance is the subject of Murr v. Wisconsin, which the US Supreme Court agreed to hear last week. The Murrs allege the government violated the 5th and 14th Amendments of the US Constitution because it took their property without just compensation by depriving them of “all, or practically all, of the use of Lot E because the lot cannot be sold or developed as a separate lot.”

Current Supreme Court Framework

A taking of real property under the Constitution can occur either through actual physical occupation, in which case any government occupation is considered a taking, or through the creation of regulations that effectively limit what the owner can do with the property. The latter is a referred to as a “regulatory taking” and is applicable in this situation. If a government action is found to be a taking, the property owner is entitled to just compensation.

The US Supreme Court has generally laid down two tracks for regulatory takings: a categorical rule that declares a taking if a regulation strips land of all its economically viable use and a flexible rule that analyzes several different factors if a regulation only partially strips land of its economically viable use.

In both instances, the Court is going to have to determine the value of the property and the use of the property before and after the regulation. In the 1978 case Penn Central Transp. Co. v. City of New Yorkthe Court first adopted the “parcel as a whole” rule where the entire parcel of land must be considered when analyzing the regulation’s influence on the land; the concept does not allow the land in question to be segmented with each segment analyzed individually. An example of this could be setback ordinances, which prohibit development along rivers or roads. Those generally aren’t takings because the regulation is only preventing economic use of a small part of the property and it furthers a legitimate state purpose.

Interestingly, not only does this “parcel as a whole” rule apply to the geographical aspects of the land, but also to the temporal aspect: the government can place moratoriums on development so long as future development remains possible.

While the parcel-as-a-whole concept has been repeatedly used, the US Supreme Court cases addressing the issue have never had the chance to directly confront the question of what constitutes the entirety of a parcel in geographic terms. The previous cases have involved regulations that either prevent development in one part of a lot or completely prevent development on each of the lots in question. For instance, in the 1992 case Lucas v. South Carolina Coastal Council, the Court determined that South Carolina’s Coastal Management Act completely deprived the owner of all economically viable use of both of his lots because the law prohibited him from putting a structure anywhere on either lot.

In a bit of foreshadowing, in the Lucas case as well as in the 2002 case Palazzolo v. Rhode Islandthe Court raised the following issues, though it was never tasked with actually addressing the issues:

1.) perhaps the parcel-as-a-whole method should not always be applied;

and

2.) the Court has yet to define exactly what it means by the entire parcel.

Will the Court Create a New Rule?

Since the Supreme Court has yet to address exactly what it means by the entire parcel, state courts and federal courts have reached differing conclusions. The Petition for Writ of Certiorari (the petition to the Supreme Court to hear the case) filed by the attorneys for the Murr family shows that for the purpose of analyzing a regulatory taking Wisconsin and Massachusetts tend to treat separate lots as single parcels if under common ownership and Florida, Ohio, and Idaho tend to keep them separate. The Wisconsin Court of Appeals grouped both of the Murr’s lots together and found that because something could still be built on the combined parcel there was no taking (the Wisconsin Supreme Court declined to hear the case). The petition argues that since state courts disagree on this interpretation of the US Constitution, the US Supreme Court must take the case to resolve the conflict.

The brief filed by the government in opposition to the petition highlights the Supreme Court’s consistent trend of looking at the entirety of the parcel. It also emphasizes the Court’s language in several cases, including Penn Central, stating that regulatory takings cases are ad hoc situations that require the court to apply rules based on the particular facts of each case. Therefore, as the brief argues, the status quo of courts taking differing approaches in figuring out what constitutes the entirety of a parcel based on the facts should stand.

Notably, the brief points to language used by Justice Scalia in a concurring opinion in the 1997 case Suitum v. Tahoe Regional Planning Agency, where he stated “The relevant land, it could be said, was the aggregation of the owners’ parcels subject to the regulation (or at least the contiguous parcels); and the use of the land, as a whole, had not been diminished.” In that quote, Justice Scalia was actually referencing the Penn Central case where the Court held that when the government prevents the development of the airpsace above the subject parcel, but grants transferable development rights (TDR’s) to be used for the airspace above other parcels it is not a taking. The brief seems to imply that Justice Scalia adopts the idea that if the surrounding, contiguous parcels are under common ownership, the regulation does not amount to a complete deprivation of economic use since it still allows the owner to develop on a piece of the contiguously owned parcels.

The fact that the Supreme Court decided to take the case may suggest it isn’t pleased with the conflict among state and federal courts. With that said, the Court can take a case with only four justices agreeing to hear it. The previously-mentioned 1992 Lucas case may give us some insight into how the Court will decide. Justice Scalia authored the opinion that adopted a categorical rule stating that a taking occurs whenever a regulation completely deprives the owner of an economic use. He appears to believe that preventing development on a lot almost always amounts to a complete deprivation of economic use.

Justice Kennedy, in a concurring opinion, stated that he favors a more ad-hoc approach that would look at reasonable economic expectations as well as investment-backed expectations even if nothing could be built on the lot, i.e. something similar to the formula created in Penn Central. This may favor the government since the Murr children acquired the property well after the zoning rule went into effect, i.e. they should have known they wouldn’t be able to build, and it appears they had no intention of building on Lot E when they acquired it, i.e. their investment-backed expectations seem to be limited. Additionally, Justice Kennedy expressed skepticism as to whether a beachfront lot loses all of its value due to development restrictions, which may be important since both of the Murr’s lots are beachfront.

The more conservative justices will likely fall with Justice Scalia while the more liberal justices will likely favor Justice Kennedy’s interpretation. Ultimately it comes down to whether you look at the lots as one parcel or as two and the divide between creating a hard and fast rule and taking a more ad hoc approach may be important.

In a note in the Lucas case, Justice Scalia recognizes the future problem of having to decide how to define the whole of a parcel and offers a glimpse of how he may approach the problem. He suggests that a single parcel could be segmented with each portion analyzed separately and also suggests the idea of grouping contiguous parcels into one larger parcel is an extreme example of how the Court should conduct its analysis. This seems to contradict what he said later in the Suitum case, so who knows.

The goal of the Wisconsin law and the St. Croix County ordinance is to protect the environment while also allowing development and protecting property value; this is not in question and the Murr family accepts it as a legitimate government action. If every lot that was in existence prior to 1976 and had a net project area of less than 1 acre was allowed to come in under the exception it would undermine the goal of protecting both the environment and property values as it would lead to increased density. The merger rules appears to be an attempt at striking a balance; it endeavors to allow those who have a pre-existing development interest to develop, but prevents those who can already develop from developing any further.

In that sense, the ordinance is in the spirit of takings jurisprudence: a regulation is okay if it gives the owner some ability to realize an economic benefit. But on the other hand, is it fair that the lots have been taxed separately and anyone other than the Murr family could have purchased Lot E and developed it?